COSBOA Business Leaders Dinner Speech - Stop Just Exporting Rocks
Good evening and thank you for altering your running order tonight to accommodate my Parliamentary duties.
A similar scheduling dilemma prevented me from appearing at your Small Business Summit in August so I’m very glad that we have this chance to exchange a few thoughts.
I’d specifically like to thank COSBOA CEO Peter Strong, chair Mark McKenzie, and the COSBOA board for this opportunity.
COSBOA plays a vital role in representing some 2.3 million Australian small business people who employ more than 4.5 million others between them.
Small business is an important part of the economy and the community.
It provides so many goods and services and in many ways it is the glue that holds the economy together.
So, tonight I am going to speak about something that would boost your sector enormously. That is for Australia, to put it bluntly, to Stop Just Exporting Rocks.
In short, one of my main goals over the duration of this Parliament is to persuade Australians that we need to add more value to what is mined in this country… and to get more value for the oil and gas that we currently export.
These issues were central to two speeches I made in the Senate last month in replies to the Governor-General’s speech.
That speech, which laid out the Morrison government’s plans going forward, was, in actual fact, the government's speech.
It was written by the Government for him to deliver, so what I am about to say is no criticism of him or his position.
In this instance the GG was purely the messenger, delivering the Morrison Government’s agenda.
I listened to the speech in the Senate.
I then went back to my office, printed the speech out and read and re-read it, looking for the Government’s vision.
Sadly, there was none.
There was nothing in there that would inspire Australians into thinking that the Morrison Government has got its hand on the tiller, its hand on the thrusters and that it's going to drive our country to where it needs to go.
It's just not in there.
All it contained are what I described in the Senate as a list of house-keeping objectives.
There were bits in the speech about tax reform. I get that tax reform is important.
Australians deserve to be able to spend more of their own money, to keep more of their own money, and, indeed, it does help to stimulate the economy.
But tax reform in itself is not a vision.
There were things in the speech like regulatory reform, industrial relations and the topic of jobs… but all we got was a story about training and apprenticeships.
I'm sorry, but none of this is visionary.
The approaches being taken amount to nothing more than housekeeping.
Similarly, there were measures about home ownership, and some good things about infrastructure: railways, airports and highways.
But it doesn't really matter which government is in power, because those things were going to happen anyway.
Keeping tabs on those things are what Government departments and its army of bureaucrats are paid to do.
Similarly, health, mental health and the NDIS are important, as is education; but again, it’s more of the same.
Put simply, the Morrison Government has no overarching vision… and furthermore it didn’t even put one forward at the election.
Mr Morrison cleverly made the election a choice between himself and Bill Shorten, who in six years’ of Newspolls was never once close to being the preferred Prime Minister.
This week, almost five months after the election, the Labor Party is finally coming to terms with losing the “unlosable” election.
Labor did have a vision: a big-spending, big-taxing vision that got the big thumbs-down.
In effect, the Coalition didn’t need to create a scare-campaign about electing Labor because Bill Shorten and Chris Bowen largely achieved it all by themselves.
The problem with Labor’s vision is that it seemed intent on creating class warfare by redistributing wealth among existing taxpayers.
Self-funded retirees, and pensioners with a retirement share-portfolio or an investment property, were lumped in with the “Big End of Town” and had to be brought down.
Importantly, Labor’s vision did nothing to find new ways of creating wealth for Australia and Australians.
It was about sharing the pie differently, not making the pie bigger, healthier, tastier or more sustainable.
And that is precisely the grand vision for Australia that the Morrison Government and the Labor Opposition both lack.
However, to make the pie bigger, healthier, tastier and more sustainable is an achievable challenge.
It starts with getting a better return on our oil and gas exports and continues with adding value to our minerals before exporting them.
In other words, it involves reviving the manufacturing industry with our own minerals.
These are economics issues that we need to consider… and ones that weren’t in the Governor-General's speech or in Labor’s election manifesto.
I don’t know why. Perhaps it has something to do with who’s giving them political donations.
Either way, Australia definitely needs to get a better deal for its oil and gas exports.
Multinational oil and gas companies operating in Australia take our resources, give very little back and pay very little in tax.
What I want to focus on here and now are the taxes and royalties that come from the extraction of oil and gas, and the money that gets returned to consolidated revenue in exchange for the extraction and exporting of these resources.
Federally, there are two tax elements on the oil and gas industry.
We have corporate tax and we have the PRRT, the petroleum resource rent tax.
In terms of corporate tax, it’s a bit of a shocker.
According to tax transparency data, ExxonMobil Australia, over four years, earned $33 billion in revenue.
And guess how much tax they paid?
Zero. Zilch. Nothing.
That's not a good return for the Australian taxpayer.
Origin Energy earned $51 billion and paid about $108 million in tax.
Shell earned $52 billion in revenue over four years and paid $1.1 billion in tax.
I know that a company’s total revenue is not taxable income—I get that—but, whatever way you look at this, there's not much of a return to the Australian taxpayers.
In Australia, income to the state from the oil and gas sector is dominated by multinationals, and the bottom line is that it's substantially lower than one would expect.
In the 2016-17 financial year, three of the larger entities, ExxonMobil Australia—which I've mentioned already—Chevron Australia Holdings and ConocoPhillips Australia Gas Holdings had a combined turnover of $11.6 billion and paid zero corporate tax.
In terms of the PRRT, these three entities also paid zero dollars in tax.
So they're taking this finite resource, extracting it and exporting it, and we're getting pretty much nothing other than jobs, indirect jobs and so forth.
Conversely, you may be surprised to learn that Equinor, the Norwegian national gas and oil Company, pays back billions of dollars a year to the Norwegian government.
In 2018-19 the taxes paid by Equinor were A$22 billion.
They also paid environmental taxes and fees of about $1 billion.
And because it's a state owned company, the dividend Equinor paid the Norwegian Government was about $3 billion, which is a huge amount of money.
The money goes into the Norwegian sovereign wealth fund, the world’s largest sovereign wealth fund, which now has more than $US1 trillion sitting in it.
Now I am not suggesting that we go in and nationalise or set up a national oil company, but I am not saying that we shouldn't.
Australia has adopted a more nationalistic, or rather nation-building approach to minerals and energy policy on occasion in the past.
That was notably the vision of the Whitlam Labor Government’s resources and energy minister “Rex” Connor.
Connor’s nation building vision was embodied in the short-lived Petroleum and Minerals Authority, the nearest thing we have had to a national energy company.
The authority ceased to exist after the High Court ruled the original legislation was invalid due to technicalities in how it had passed Parliament.
But it’s an issue that’s worth re-examining, as many other countries have pursued similar approaches to resources and energy development.
National oil and gas companies around the world include China National Petroleum Corporation, Indian Oil Corporation, Korean National Oil Company, and Kuwait Petroleum Corporation.
There is a long list of these companies that are national companies set up to extract and export their oil and gas and return a significant amount back to their country’s consolidated revenue.
To investigate the possibilities, I have lodged a motion for the Senate to look at, by way of an inquiry, how we might do things better, informed by what other jurisdictions do.
I am not talking about a tweak; I am talking about a rethink.
We need to rethink it with regard to sovereign risk and property rights.
It is important that we reconsider what we are doing.
The same applies to our mining industry.
We are a world leader in efficient minerals extraction and export.
We export iron ore, lithium and uranium, for example.
We export all sorts of things, but we don't value-add to those resources.
Australia has enormous lithium reserves… about 60 per cent of the global market in a world hungry for lithium ion batteries.
These days almost every one of us has a smartphone or some sort of device that uses lithium ion batteries.
All of our future cars will use lithium ion batteries.
Hopefully our future submarine will have lithium ion batteries as well, although I fear that we'll end up with lead acid cells.
Our homes will have wall banks with lithium ion batteries.
The world is jumping onto this technology, and what are we doing?
We dig the lithium out of the ground in the Pilbara and ship it offshore.
There are five stages of processing in the production of lithium ion batteries.
The first stage is mining and concentration, which will have a world market total in 2025 of around $12 billion.
So, if we had the entire world market, we'd have $12 billion worth of exports.
The next stage is refining and processing, worth $41 billion.
Then we move to electrochemical processing, worth $297 billion; cell production, $424 billion; and battery assembly, $1.3 trillion.
But what are we going to shoot for?
We're going to shoot for something less than $12 billion as we export these rocks.
So my vision is this:
Let's value-add. Let's take those resources that we're digging out of the ground and do something with them.
Let's add the value which creates jobs and employment, generates economic activity and would make Australia a very rich country.
We have to learn to say ‘No more’ to just shipping it offshore and we have to find ways to add value to them here.
I have similar issues with our steel.
We have lots of iron ore in this country.
We've got to build up our manufacturing.
We've got to build up these capabilities where we add value to the economy.
Right now we take the rocks and send them offshore and other countries develop the technologies.
They add the value and sell it back to us at a much, much higher price.
Some of those countries we're a bit concerned about.
We're a bit concerned about how they're expanding their reach into the region.
We're concerned about how they're exercising soft power.
We're concerned about how they're growing their armed forces, but in some sense we're funding it.
We're funding it because we're just exporting the rocks for them to add the value to.
In so many ways what we are doing with our resources could or will come back to bite us.
Right now we're coasting along.
In his 1964 book The Lucky Country, authorDonald Horne opened the final chapter with the following quote:
“Australia is a lucky country run mainly by second rate people who share its luck.
“It lives on other people's ideas, and, although its ordinary people are adaptable, most of its leaders (in all fields) so lack curiosity about the events that surround them that they are often taken by surprise”.
Fifty-five years later, it should come as no surprise that little has changed.
We are still catching up to where other countries used to be, but they have since moved on.
We need to get to the front of the pack and then get ahead of the field.
We really do need to do a lot more.
And yes, of course Governments and Parliaments need to oversee the housekeeping.
Australia needs to get the best deals on its Future Submarines and its infrastructure.
It needs to ensure that new high rise housing developments aren’t uninhabitable or surrounded with flammable cladding.
It needs to work on openness and transparency in Government and greater freedoms for media and whistle-blowers to weed out second-rate actors and second-rate decisions.
It needs to find solutions to the Murray-Darling impasse and protect the Great Australian Bight from potentially unsafe oil and gas exploration.
Like the other housekeeping issues mentioned in the Governor-General’s speech, these are the day-to-day issues the Morrison Government must address if it wishes to keep favour with the electorate.
But ahead of all of these considerations is the need for a vision for Australia to reach its full potential economically and socially.
To do that these goals needs to be prioritised in the same way that Australia prioritised sport after the 1976 Montreal Olympics.
You may recall in those games Australia came 32nd in the medal tally with just five medals: no Gold, one Silver and four Bronze.
It led to the establishment of the Australian Sports Commission in 1981, and since the Australia has again been among the world’s top sporting nations.
We need that same sense of purpose to create a blueprint for Australia’s future economic stability and sustainability.
For small business to grow and prosper, it goes without saying that we need some big ticket ways of growing individual wealth and keeping more money in the Australian economy.
In the short term, that means finding ways of getting a better return on our oil and gas exports commensurate with other countries.
In the longer term, it means creating a national strategic plan to ensure that a far greater proportion of our natural resources are used here by establishing the manufacturing industries of the future such as in the creation of lithium ion batteries.
But most of all, under any terms, it just might also require Australians to demand more from their politicians from now on and to get involved with improving the democratic process.